As blockchains like Ethereum get older and technology and hackers get more advanced, it’s important for the blockchain’s underlying code, or smart contracts, to remain top notch.
Enter forks, which are software updates that add new features, patch security holes, and resolve disagreements between competing camps with different visions of the project’s future.
In this guide, we’ll review the fundamentals of Ethereum forks, including what they mean, their historical examples, and why blockchains fork. We’ll also discuss how forks continue to shape the crypto market.
What is a fork in Ethereum?
In open-source software development, a fork happens when a developer or group of developers makes a copy of an existing project to take it in a different direction from its current path. Like a fork in the road, a software fork results in two diverging branches with the exact same history right up to the point where the split occurs.
Many cryptocurrencies, including Ethereum (ETH), have an associated blockchain, a series of linked blocks of data representing transactions secured and validated by a decentralized network of computers (aka nodes). Since Ethereum is an open-source software project, it can be forked just like any other piece of software.
When a fork takes place in Ethereum or any other open-source blockchain project, the rules of the underlying blockchain change. Most often, these forks are routine upgrades supported by most community members. Sometimes, however, they’re contentious, meaning the community is split about whether the fork is a good idea––some nodes choose to follow the new rules, while others elect to stick with the old ones. This results in a forked codebase, two distinct projects, and a forked community, as each side fights to become known as the dominant, original, or canonical chain.
What are Ethereum hard forks?
A hard fork occurs when an update to the code changes the blockchain’s rules, so nodes that don’t update their software to the new rules can’t produce new transaction blocks. In other words, hard forks introduce software changes that aren’t backward-compatible. Nodes that don’t adopt the new rules can’t participate in the network or receive rewards for producing new blocks.
When many nodes reject a hard fork, this results in a split: two distinct blockchains with the same history up to the hard fork’s introduction but divergent futures and rules for creating new blocks.
A few of the most notable Ethereum hard forks include:
The DAO fork
A DAO, short for decentralized autonomous organization, is a blockchain-powered organizational structure. DAOs operate without the traditional hierarchy seen in conventional corporations, relying instead on smart contracts to execute their governance and operational rules autonomously.
The DAO fork is one of the most contentious Ethereum hard forks that took place on July 20, 2016. The DAO was a decentralized crypto trading fund for Ether and Ethereum-based tokens that counted among its members many of the most well-known and wealthiest figures and traders in the Ethereum landscape.
When a hacker found a bug in the DAO’s code that enabled them to drain 3.6 million ETH from the DAO’s holdings, the community leaped into action to fork the chain to allow depositors to retrieve their funds. A sizable proportion of the Ethereum community believed the fork went against the principle that blockchain transactions should be immutable—impossible to reverse—and continued to mine and build on what they viewed as the original chain. This chain was dubbed Ethereum Classic and is still mining blocks today.
Ethereum Byzantium fork
The monumental Byzantium hard fork occurred in October 2017. Byzantium incorporated nine proposals to improve the Ethereum blockchain’s privacy, security, and scalability.
Specific changes included the ability to stop smart contracts from consuming all gas fees when an error occurs, reducing the block reward from five ETH to three ETH, and delaying the “difficulty bomb” that would make mining unprofitable in preparation for the switch to proof-of-stake (PoS).
The Merge
The Merge ETH fork transitioned Ethereum from a proof-of-work (PoW) blockchain, where miners compete using large amounts of computing power to secure the network and produce the next block for a reward, to a PoS blockchain, where stakers secure the network and produce blocks by depositing a stake in the blockchain’s native cryptocurrency (ETH) that can be penalized if other nodes detect malicious behavior.
PoS blockchains are dramatically more environmentally friendly than PoW blockchains and often allow for faster and cheaper transactions. The Merge took place on September 15, 2022.
Hard forks versus soft forks
Like hard forks, soft forks are updates to a blockchain’s underlying code, with the primary distinction that blocks mined under the old rules are still valid after the fork. This means that nodes that don’t update their code won’t be left behind; instead, they’ll continue to participate in the existing blockchain by producing and validating new blocks.
Comparing the two types of forks, hard forks introduce new rules that are less restrictive than the old ones, so nodes that don’t update their software will reject blocks that follow the new rules. On the other hand, soft forks introduce more restrictive rules, so even nodes that follow the old rules will accept blocks produced by updated nodes.
To illustrate, consider a soft fork that changes the block size—the maximum size of all transactions in a block—from two MB to one MB. In this case, since the new block size is smaller than the old block size, nodes that follow the old rules will still accept any block produced by the updated nodes since these blocks will always have a block size less than the original maximum of two MB.
Conversely, if a hard fork changes the block size from one MB to two MB, blocks that follow the old rules will reject any new blocks that exceed the original block size limit of one MB, resulting in a chain split and two distinct blockchains.
Why do blockchains fork?
Blockchains like Ethereum or Bitcoin fork for various reasons. Here are a few:
Adding new functionality: Like any software upgrade, one of the most common reasons for conducting a fork is to add new functionality. Ethereum’s most prominent example was the Merge.
Patch security loopholes: Ethereum forks often include security updates to strengthen the blockchain and prevent bad actors from causing harm. For example, the Byzantium fork included several updates to improve security.
Resolve disagreements: The most notorious fork type occurs when there’s disagreement about a project’s future trajectory. The DAO fork is the most famous example.
How do forks continue to modify cryptocurrencies?
Forks are used for routine upgrades and not just during community disagreements. They’re the key drivers of change in open-source blockchain systems.
For example, Ethereum’s March 2024 Dencun upgrade introduced several significant enhancements. Key changes included proto-danksharding to optimize data storage and reduce layer-2 transaction fees, consensus upgrades, and improved gas efficiency.
What are Ethereum Improvement Proposals?
Every planned Ethereum fork is preceded by an Ethereum Improvement Proposal (EIP), a document specifying proposed changes to the Ethereum blockchain.
EIPs are often highly technical and tend to be written by Ethereum blockchain developers or highly skilled developers of well-known projects building on the network, but anyone is welcome to contribute an EIP to the community. Much of the discussion about the blockchain’s direction centers around EIPs, and only those that gain wide approval among the Ethereum community make it into a fork.
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